The North Bay Business Journal published an article last week on American wine producers’ and exporters’ burgeoning wine sales to Chinese distributors, entitled, “For wineries, China presents obstacles along with opportunity.” [link no longer exists] The article highlights some of the same issues we addressed in two earlier posts, China: Get Thee to a Winery and China: Get Thee to a Winery, Part II, such as the difficulty of finding paying buyers and having to fight off fakes (read this article on China’s own illegally watered down Two Yuan Chuck). Beyond this though, the article provides very good general business information for those doing business in China, mostly by extensively quoting Jonathan Lemberg, “an expert in doing wine business in China.”
Mr. Lemberg correctly notes how Americans and Chinese tend to view contracts differently:
In the United States, a contract is viewed as binding and it’s expected that you do what the document says. Many vintners find that Chinese counter-parties will take a contract as a starting point for future negotiations as opposed to an obligation.
He then recommends talking for trying to get around this difference:
The point is, if your Chinese counter-party doesn’t understand a particular provision, even if it’s an important, boilerplate provision, they might say, “We never really talked about that.” But if you come to an oral agreement on an issue, they’re much more likely to see a moral and legal obligation to perform on it.
Mr. Lemberg goes on to rightly emphasize the importance of registering your trademark in China:
Trademarks and labels are another potential danger zone, he said. China has a “first to file” type of jurisdiction, where it’s easy for locals to apply for, and be awarded, the trademarks and names of foreign companies, with the exception of extremely recognizable global brands like Nike or Coca-Cola.
“You need to make certain, for instance, that you have a clear contractual arrangement with distributors, making sure it prohibits them from filing under your trademarked name,” Mr. Lemberg said. “The best protection is to go to China and get a trademark application filed in your own name.”
We strongly agree with Mr. Lemberg’s advice to register your trademarks in China. For more on this, check out our previous posts, China Trademarking, Chinese Watermelons, And Rumors Of HIV Tainting and China’s Trademark Laws — Simple And Effective. However, I disagree with his suggesting a contract with a distributor is a suitable substitute for a trademark, as it is not. The cost to draft a contract with a distributor will likely be close to that of filing for an actual trademark, yet its protections will be far less. The contract will protect you only against the distributor; trademark registration will protect you against everyone in China. Get the trademark EVERY time.
Larry Holman of Cline Cellars in Sonoma, which sells between 400 and 500 cases to China annually, is bullish on China’s wine business:
“It’s a limited wine culture there right now,” he said. “But the economy is booming just like everybody says. It’s phenomenal growth, and I wanted to go over for myself and learn more about the market.”
More good business advice: go there and see for yourself.